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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-37587

 

CytomX Therapeutics, Inc.

(Exact name of Registrant as Specified in its Charter)

 

 

Delaware

 

27-3521219

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

151 Oyster Point Blvd., Suite 400

South San Francisco, CA 94080

(Address of principal executive offices, including zip code)

(650) 515-3185 

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.00001 par value per share

 

CTMX

 

Nasdaq Global Select Market

 

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes        No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

☐ 

  

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of April 30, 2021, the registrant had 65,011,130 shares of common stock, $0.00001 par value per share, outstanding.

 

 

 

 


 

CYTOMX THERAPEUTICS, INC.

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2021

TABLE OF CONTENTS

 

 

  

PART I – FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

  

Condensed Financial Statements (Unaudited)

 

5

 

  

Condensed Balance Sheets

 

5

 

  

Condensed Statements of Operations and Comprehensive Income (Loss)

 

6

 

 

Condensed Statements of Stockholders’ Equity

 

7

 

  

Condensed Statements of Cash Flows

 

8

 

  

Notes to Condensed Financial Statements (Unaudited)

 

9

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

23

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

 

31

Item 4

  

Controls and Procedures

 

32

 

 

 

 

 

 

  

PART II – OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

  

Legal Proceedings

 

33

Item 1A.

  

Risk Factors

 

33

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

 

76

Item 3.

  

Defaults Upon Senior Securities

 

76

Item 4.

  

Mine Safety Disclosures

 

76

Item 5.

  

Other Information

 

76

Item 6.

  

Exhibits

 

77

Signatures

 

78

 


2


 

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains certain forward-looking statements that involve risks and uncertainties. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “might,” “should,” “could,” “predict,” “potential,” “believe,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would,” “annualized” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.

A number of important factors could cause our actual results to differ materially from those indicated in these forward-looking statements, including those factors identified in “Risk Factors” or “Management’s Discussion and Analysis of Financial Condition and Results of Operations” or the following:

 

 

the extent to which the COVID-19 pandemic and related governmental regulations and restrictions may impact our business, including our research, clinical trials, manufacturing and financial condition;

 

 

our expectations regarding the potential benefits, activity, effectiveness and safety of our product candidates and therapeutics developed utilizing our Probody® platform technology;

 

 

the initiation, timing, progress and results of our ongoing clinical trials, research and development programs, preclinical studies, and Investigational New Drug application (“IND”), Clinical Trial Application, New Drug Application (“NDA”), Biologics License Application (“BLA”), and other regulatory submissions;

 

 

the timing of the completion of our ongoing clinical trials and the timing and availability of clinical data from such clinical trials;

 

 

our ability to identify and develop additional product candidates;

 

 

our dependence on collaborators for developing, obtaining regulatory approval for and commercializing product candidates in the collaboration;

 

 

our or a collaborator’s ability to obtain and maintain regulatory approval of any of our product candidates;

 

 

our receipt and timing of any milestone payments or royalties under any research collaboration and license agreements or arrangements;

 

 

our expectations and beliefs regarding the evolution of the market for cancer therapies and development of the immuno-oncology industry;

 

 

the rate and degree of market acceptance of any approved product candidates;

 

 

the commercialization of any approved product candidates;

 

 

our ability to establish and maintain collaborations and retain commercial rights for our product candidates in such collaborations;

 

 

the implementation of our business model and strategic plans for our business, technologies and product candidates;

 

 

our estimates of our expenses, ongoing losses, future revenue and capital requirements;

 

 

our ability to obtain additional funds for our operations;

 

 

our or any collaborator’s ability to obtain and maintain intellectual property protection for our technologies and product candidates and our ability to operate our business without infringing the intellectual property rights of others;

 

 

our reliance on third parties to conduct our preclinical studies or any future clinical trials;

 

 

our reliance on third-party supply and manufacturing partners to supply the materials and components for, and manufacture, our research and development, preclinical and clinical trial product supplies;

 

 

our ability to attract and retain qualified key management and technical personnel;

 

3


 

 

our ability to secure and maintain licenses of intellectual property to protect our technologies and product candidates;

 

 

our financial performance; and

 

 

developments relating to our competitors or our industry.

Any forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part II, Item 1A. Risk Factors and discussed elsewhere in this Quarterly Report on Form 10-Q. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

This Quarterly Report on Form 10-Q also contains estimates, projections and other information concerning our industry, our business and the markets for certain drugs and therapeutic biologics, including data regarding the estimated size of those markets, their projected growth rates and the incidence of certain medical conditions. Information that is based on estimates, forecasts, projections or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained these industry, business, market and other data from reports, research surveys, studies and similar data prepared by third parties, industry, medical and general publications, government data and similar sources. In some cases, we do not expressly refer to the sources from which these data are derived.

Except where the context otherwise requires, in this Quarterly Report on Form 10-Q, “we,” “us,” “our” and the “Company” refer to CytomX Therapeutics, Inc.

Trademarks

This Quarterly Report on Form 10-Q includes trademarks, service marks and trade names owned by us or other companies. All trademarks, service marks and trade names included in this Quarterly Report on Form 10-Q are the property of their respective owners.

 

4


 

PART I – FINANCIAL INFORMATION

Item 1.

Condensed Financial Statements (Unaudited)

CYTOMX THERAPEUTICS, INC.

CONDENSED BALANCE SHEETS

(in thousands, except share and per share data)

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

(unaudited)

 

 

(1)

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

329,666

 

 

$

191,859

 

Short-term investments

 

 

64,130

 

 

 

124,260

 

Accounts receivable

 

 

756

 

 

 

798

 

Prepaid expenses and other current assets

 

 

5,456

 

 

 

7,096

 

Total current assets

 

 

400,008

 

 

 

324,013

 

Property and equipment, net

 

 

7,172

 

 

 

6,950

 

Intangible assets, net

 

 

1,130

 

 

 

1,167

 

Goodwill

 

 

949

 

 

 

949

 

Restricted cash

 

 

917

 

 

 

917

 

Operating lease right-of-use asset

 

 

21,736

 

 

 

22,495

 

Other assets

 

 

2,246

 

 

 

2,172

 

Total assets

 

$

434,158

 

 

$

358,663

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,582

 

 

$

2,996

 

Accrued liabilities

 

 

18,831

 

 

 

23,059

 

Deferred revenue, current portion

 

 

76,636

 

 

 

74,869

 

Total current liabilities

 

 

98,049

 

 

 

100,924

 

Deferred revenue, net of current portion

 

 

169,280

 

 

 

186,261

 

Operating lease liabilities - long term

 

 

20,807

 

 

 

21,675

 

Total liabilities

 

 

288,136

 

 

 

308,860

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Convertible preferred stock, $0.00001 par value; 10,000,000 shares authorized and no shares issued and outstanding at March 31, 2021 and December 31, 2020.

 

 

 

 

 

 

Common stock, $0.00001 par value; 150,000,000 shares authorized and 65,002,897 and 48,251,819 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively

 

 

1

 

 

 

1

 

Additional paid-in capital

 

 

611,733

 

 

 

499,964

 

Accumulated other comprehensive loss

 

 

(43

)

 

 

(47

)

Accumulated deficit

 

 

(465,669

)

 

 

(450,115

)

Total stockholders' equity

 

 

146,022

 

 

 

49,803

 

Total liabilities and stockholders' equity

 

$

434,158

 

 

$

358,663

 

 

(1)

The condensed balance sheet as of December 31, 2020 was derived from the audited financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020.

 

See accompanying notes to condensed financial statements.

5


CYTOMX THERAPEUTICS, INC.

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except share and per share data)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Revenues

 

$

15,971

 

 

$

49,593

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

22,371

 

 

 

42,814

 

General and administrative

 

 

9,227

 

 

 

9,572

 

Total operating expenses

 

 

31,598

 

 

 

52,386

 

Loss from operations

 

 

(15,627

)

 

 

(2,793

)

Interest income

 

 

68

 

 

 

1,075

 

Other income, net

 

 

5

 

 

 

12

 

Loss before income taxes

 

 

(15,554

)

 

 

(1,706

)

Provision for (benefit from) income taxes

 

 

 

 

 

(13,911

)

Net income (loss)

 

$

(15,554

)

 

$

12,205

 

Net income (loss) per share

 

 

 

 

 

 

 

 

Basic

 

$

(0.26

)

 

$

0.27

 

Diluted

 

$

(0.26

)

 

$

0.26

 

Shares used to compute net income (loss) per share

 

 

 

 

 

 

 

 

Basic

 

 

60,968,111

 

 

 

45,723,955

 

Diluted

 

 

60,968,111

 

 

 

47,044,774

 

Other comprehensive income:

 

 

 

 

 

 

 

 

Unrealized gain on short-term investments, net of tax

 

$

4

 

 

$

279

 

Comprehensive income (loss)

 

$

(15,550

)

 

$

12,484

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed financial statements.

 

 

6


 

CYTOMX THERAPEUTICS, INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income/(Loss)

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2020

 

 

48,251,819

 

 

$

1

 

 

$

499,964

 

 

$

(47

)

 

$

(450,115

)

 

$

49,803

 

Issuance of common stock in follow-on offering, net of issuance costs

 

 

16,428,571

 

 

 

-

 

 

 

107,712

 

 

 

-

 

 

 

-

 

 

 

107,712

 

Exercise of stock options

 

 

322,507

 

 

 

-

 

 

 

1,023

 

 

 

-

 

 

 

-

 

 

 

1,023

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

3,034

 

 

 

-

 

 

 

-

 

 

 

3,034

 

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4

 

 

 

-

 

 

 

4

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(15,554

)

 

 

(15,554

)

Balance at March 31, 2021

 

 

65,002,897

 

 

$

1

 

 

$

611,733

 

 

$

(43

)

 

$

(465,669

)

 

$

146,022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income/(Loss)

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2019

 

 

45,523,088

 

 

$

1

 

 

$

468,285

 

 

$

57

 

 

$

(417,230

)

 

$

51,113

 

Exercise of stock options

 

 

395,528

 

 

 

-

 

 

 

2,157

 

 

 

-

 

 

 

-

 

 

 

2,157

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

4,013

 

 

 

-

 

 

 

-

 

 

 

4,013

 

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

279

 

 

 

-

 

 

 

279

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

12,205

 

 

 

12,205

 

Balance at March 31, 2020

 

 

45,918,616

 

 

$

1

 

 

$

474,455

 

 

$

336

 

 

$

(405,025

)

 

$

69,767

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed financial statements.

 

 

7


 

CYTOMX THERAPEUTICS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(15,554

)

 

$

12,205

 

Adjustments to reconcile net income (loss) to net cash used in operating activities:

 

 

 

 

 

 

 

 

Amortization of intangible assets

 

 

36

 

 

 

36

 

Depreciation and amortization

 

 

638

 

 

 

601

 

Amortization of premium (accretion of discounts) on investments

 

 

141

 

 

 

(127

)

Stock-based compensation expense

 

 

3,034

 

 

 

4,013

 

Non-cash lease expense

 

 

759

 

 

 

700

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Accounts receivable

 

 

42

 

 

 

(129,997

)

Prepaid expenses and other current assets

 

 

1,640

 

 

 

(14,957

)

Other assets

 

 

(74

)

 

 

636

 

Accounts payable

 

 

(292

)

 

 

52

 

Accrued and other long-term liabilities

 

 

(5,096

)

 

 

(3,315

)

Deferred revenue

 

 

(15,214

)

 

 

80,416

 

Net cash used in operating activities

 

 

(29,940

)

 

 

(49,737

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(982

)

 

 

(1,049

)

Purchases of short-term investments

 

 

-

 

 

 

(44,707

)

Maturities of short-term investments

 

 

59,994

 

 

 

48,197

 

Net cash provided by investing activities

 

 

59,012

 

 

 

2,441

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock, net of issuance costs

 

 

107,712

 

 

 

-

 

Proceeds from exercise of stock options

 

 

1,023

 

 

 

2,157

 

Net cash provided by financing activities

 

 

108,735

 

 

 

2,157

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

137,807

 

 

 

(45,139

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

192,776

 

 

 

189,342

 

Cash, cash equivalents and restricted cash, end of period

 

$

330,583

 

 

$

144,203

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed financial statements.

 

 

8


 

CytomX Therapeutics, Inc.

Notes to Condensed Financial Statements (Unaudited)

 

1. Description of the Business

CytomX Therapeutics, Inc. (the “Company”) is a clinical-stage, oncology-focused biopharmaceutical company with a vision of transforming lives with safer, more effective therapies. The Company aims to build a commercial-stage enterprise to maximize its impact on the treatment of cancer. The Company is advancing potential first-in-class and best-in-class antibody-based therapeutics created using its Probody® therapeutic technology platform that could meaningfully improve outcomes for cancer patients. Its proprietary and unique Probody technology platform is designed to enable “conditional activation” of antibody-based drugs within the tumor while minimizing drug activity in healthy tissues and in circulation. The Company is located in South San Francisco, California and was incorporated in the state of Delaware in September 2010.

 

 

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying interim condensed financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting.

Unaudited Interim Financial Information

The accompanying interim condensed financial statements and related disclosures are unaudited, have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of the results of operations for the periods presented.

 

The condensed balance sheet data, as of December 31, 2020, was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. The condensed results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the full year or for any other future year or interim period. The accompanying condensed financial statements should be read in conjunction with the audited financial statements and the related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC.

Use of Estimates

The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with original maturities of three months or less at the date of purchase to be cash equivalents.

Restricted Cash

Restricted cash represents a standby letter of credit issued pursuant to an office lease entered in December 2015.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed balance sheets that sum to the total of the amounts shown in the condensed statements of cash flows.

 

 

 

March 31, 2021

 

 

December 31, 2020

 

 

March 31, 2020

 

 

December 31, 2019

 

 

 

(in thousands)

 

Cash and cash equivalents

 

$

329,666

 

 

$

191,859

 

 

$

143,286

 

 

$

188,425

 

Restricted cash - non-current assets

 

 

917

 

 

 

917

 

 

 

917

 

 

 

917

 

Total

 

$

330,583

 

 

$

192,776

 

 

$

144,203

 

 

$

189,342

 

 

9


 

 

Short-term Investments

All investments have been classified as available-for-sale (“AFS”) and are carried at fair value as determined based upon quoted market prices or pricing models for similar securities at period end. Generally, those investments with contractual maturities less than 12 months are considered short-term investments.  The amortized cost of securities is adjusted for amortization of premiums and accretion of discounts to maturity. Dividend and interest income are recognized when earned. Realized gains and losses are included in earnings and are derived using the specific identification method for determining the cost of securities sold.

The Company assesses impairment of its AFS debt securities investments at each reporting period.  Unrealized gains resulting from the excess of the fair value over the amortized cost basis of an investment are reported as a component of accumulated other comprehensive income (loss), net of tax.  Unrealized losses or impairments resulting from the fair value of the AFS debt security being below the amortized cost basis are evaluated, using the discounted cash flow model, for identification of credit losses and non-credit related losses.  Any credit losses are charged to earnings against the allowance for credit losses of the security, limited to the difference between the fair value and the amortized cost basis of the security.  Any difference between the fair value of the security and the amortized cost basis, less the allowance for credit losses, are reported in other comprehensive income (loss).  Expected cash inflows due to improvements in credit are recognized through a reversal of the allowance for credit losses subject to the total allowance previously recognized.

In the event of impairment of any security, if management (i) has the intent to sell such security or (ii) will more-likely-than-not be required to sell such security before recovery of its amortized cost basis, such AFS debt security’s amortized cost basis will be written down to its fair value through earnings along with any existing allowance for credit losses.

 

Comprehensive Income (Loss)

Comprehensive income (loss) represents all changes in stockholders’ equity except those resulting from distributions to stockholders. The Company’s non-credit related unrealized gains and losses on short-term investments during the period represents the component of other comprehensive income (loss) that is excluded from the reported net loss.

Revenue Recognition

 

The Companys revenues are primarily derived through its license, research, development and commercialization agreements. The terms of these types of agreements may include (i) licenses for the Companys technology or programs, (ii) research and development services, and (iii) services or obligations in connection with participation in research or steering committees. Payments to the Company under these arrangements typically include one or more of the following: nonrefundable upfront and license fees, research funding, milestone and other contingent payments to the Company for the achievement of defined collaboration objectives and certain preclinical, clinical, regulatory and sales-based events, as well as royalties on sales of any commercialized products.  

 

The Company assesses whether the promises in its arrangements with customers are considered as distinct performance obligations that should be accounted for separately. Judgment is required to determine whether the license to the Companys intellectual property is distinct from the research and development services or participation on steering committees.

 

The Company’s collaboration and license agreements may include contingent payments related to specified research, development and regulatory milestones. Such milestone payments are typically payable under the collaborations when the collaboration partner claims or selects a target, or initiates or advances a covered product candidate in preclinical or clinical development, upon submission for marketing approval of a covered product with regulatory authorities or upon receipt of actual marketing approvals of a covered product or for additional indications. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. At each reporting date, the Company re-evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price by using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price in such period of determination.

 

The Companys collaboration and license agreements may also include contingent payments related to sales-based milestones. Sales-based milestones are typically payable when annual sales of a covered product reach specified levels. Sales-based milestones are recognized at the later of when the associated performance obligation has been satisfied or when the sales occur. Unlike other contingency payments, such as regulatory milestones, sales-based milestones are not included in the transaction price based on estimates at the inception of the contract, but rather, are included when the sales or usage occur.

 

10


 

 

The transaction price in each arrangement is allocated to the identified performance obligations based on the relative standalone selling price (SSP) of each distinct performance obligation, which requires judgment. In instances where SSP is not directly observable, such as when a license or service is not sold separately, SSP is determined using information that may include market conditions and other observable inputs. Due to the early stage of the Companys licensed technology, the license of such technology is typically combined with research and development services and steering committee participation as one performance obligation.  In the event that the Company receives non-cash consideration such as consideration in the form of a research license and research support services from the counterparty, the transaction price of a non-monetary exchange that has commercial substance is estimated based on the fair value of the non-cash consideration received, which may be determined through a valuation analysis.  

 

In certain cases, the Company’s performance creates an asset that does not have an alternative use to the customer and the Company has an enforceable right to payment at all times for performance completed to date.  In these cases, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

 

AbbVie Ireland Unlimited Company (AbbVie), one of the Companys collaboration partners, entered into a license agreement with Seagen Inc, formerly Seattle Genetics, Inc. (SGEN) to license certain intellectual property rights. As part of the Companys collaboration agreement with AbbVie, the Company is required to pay SGEN sublicense fees for certain milestone achievements and an annual maintenance fee. These sublicense fees are treated as reductions to the transaction price and combined with the performance obligation to which they relate.

Contract Balances

 

Customer payments are recorded as deferred revenue upon receipt or when due and may require deferral of revenue recognition to a future period until the Company satisfies its performance obligations under these arrangements. Amounts payable to the Company are recorded as accounts receivable when the Company’s right to consideration is unconditional.

Research and Development Expenses

 

The Company records accrued liabilities for estimated costs of research and development activities conducted by third-party service providers, which include the conduct of preclinical and clinical studies, and contract manufacturing activities. The Company records the estimated costs of research and development activities based upon the estimated amount of services provided but not yet invoiced, and includes these costs in accrued liabilities in the balance sheets and within research and development expense in the statements of operations. These costs are a significant component of the Company’s research and development expenses. The Company accrues for these costs based on factors such as estimates of the work completed and in accordance with agreements established with its third-party service providers under the service agreements. The Company makes significant judgments and estimates in determining the accrued liabilities balance in each reporting period. As actual costs become known, the Company adjusts its accrued liabilities. The Company has not experienced any material differences between accrued costs and actual costs incurred. However, the status and timing of actual services performed may vary from the Company’s estimates, resulting in adjustments to expense in future periods. Changes in these estimates that result in material changes to the Company’s accruals could materially affect the Company’s results of operations.

 

Research and development expenses include costs directly attributable to the conduct of research and development programs, including the cost of salaries, payroll taxes, employee benefits, materials, supplies, depreciation on and maintenance of research equipment, the cost of services provided by outside contractors, and the allocated portions of facility costs, such as rent, utilities, insurance, repairs and maintenance, depreciation, and general support services. All costs associated with research and development are expensed as incurred.

Stock-based Compensation

 

The Company recognizes compensation costs related to stock options granted to employees based on the estimated fair value of the awards on the date of grant. The Company records forfeitures as they are incurred. The Company estimates the grant date fair value, and the resulting stock-based compensation expense, using the Black-Scholes option-pricing model. The grant date fair value of stock-based awards is expensed on a straight-line basis over the period during which the employee is required to provide service in exchange for the award (generally the vesting period).

11


 

 

The Company estimates the fair value of its stock-based awards using the Black-Scholes option-pricing model, which requires the input of assumptions. The assumptions are as follows:

 

 

Expected term. The expected term of stock options represents the period that the stock options are expected to remain outstanding and is based on vesting terms, exercise term and contractual lives of the options. The expected term of the ESPP shares is equal to the six-month look-back period.

 

Expected volatility. The expected stock price volatility for the Company’s stock options is based on the historical stock price volatility over the period which is commensurate with the estimated expected term of the stock awards.  Volatility for ESPP shares is equal to the Company’s historical volatility over a six-month offering period.

 

Risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury yield with a maturity equal to the expected term of the stock options in effect at the time of grant.

 

Dividend yield. The expected dividend is assumed to be zero as the Company has never paid dividends and has no current plan to pay any dividends on its common stock.

 

Leases

The Company determines if an arrangement is or contains a lease at inception.  Operating leases are recorded as operating lease right-of-use (“ROU”) assets and operating lease liabilities in the Company’s balance sheet.  ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.  The Company uses an implicit rate when readily available, or its incremental borrowing rate based on the information available at lease commencement date in determining the present value of lease payments.  The operating lease ROU assets also include any lease prepayments made and reduced by lease incentives. The Company’s lease terms may include options to extend the lease when it is reasonably certain that such option will be exercised. Lease expenses are recognized on a straight-line basis over the lease term.  The Company elected the short-term lease recognition exemption. The Company’s operating lease arrangement includes lease and non-lease components which are generally accounted for separately.

 

 

Adopted Accounting Pronouncements

 

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general principles of ASC 740 in order to reduce cost and complexity of its application.  The ASU removes the exception related to the incremental approach for intraperiod tax allocation as well as two exceptions related to accounting for outside basis differences of equity method investments and foreign subsidiaries.  The ASU also amends the scope of ASC 740 related to a franchise tax (or similar tax) that is partially based on income; clarifies when a step-up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction; specifies that an entity is not required to allocate income tax expense to a legal entity that is both not subject to tax and disregarded by the taxing authority; and  clarifies that all tax effects, both deferred and current, should be accounted for in the interim period that includes the enactment date.  The Company adopted this ASU on January 1, 2021, and there was no material impact on the financial statements upon adoption of this ASU.  

 

 

3. Net Income (Loss) Per Share

Basic net income (loss) per share is calculated by dividing the net income (loss) by the weighted-average number of shares of common stock outstanding for the period.  Diluted net income per share is calculated using the weighted-average number of common shares outstanding, plus potential dilutive common stock during the period.  Diluted net loss per share, for the comparative period, is the same as basic net loss per share since the effect of the potentially dilutive securities is anti-dilutive.

12


 

The following table presents the calculation of basic and diluted net income (loss) per share:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

Numerator:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(15,554

)

 

$

12,205

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

Weighted-average common shares used to calculate net income (loss) per share

 

 

60,968,111

 

 

 

45,723,955

 

Diluted

 

 

 

 

 

 

 

 

Weighted-average common shares used to calculate net income (loss) per share

 

 

60,968,111

 

 

 

45,723,955

 

Effect of potentially dilutive securities:

 

 

 

 

 

 

 

 

Stock options and ESPP shares

 

 

-

 

 

 

1,320,819

 

 

 

 

60,968,111

 

 

 

47,044,774

 

Net income (loss) per share

 

 

 

 

 

 

 

 

Basic

 

$

(0.26

)

 

$

0.27

 

Diluted

 

$

(0.26

)

 

$

0.26

 

 

The following weighted-average outstanding shares of potentially dilutive securities were excluded from the computation of diluted net income (loss) per share for the periods presented, because including them would have been anti-dilutive:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Options and ESPP to purchase common stock

 

 

11,554,985

 

 

 

8,234,298

 

 

 

 

4. Fair Value Measurements and Short-Term Investments

In accordance with Accounting Standards Codification (“ASC”) 820-10, Fair Value Measurements and Disclosures, the Company determines the fair value of financial and non-financial assets and liabilities using the fair value hierarchy, which establishes three levels of inputs that may be used to measure fair value, as follows:

 

Level I: Inputs which include quoted prices in active markets for identical assets and liabilities.

 

Level II: Inputs other than Level I that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level III: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The carrying amounts of the Company’s financial instruments, including restricted cash, accounts receivable, accounts payable and accrued liabilities approximate fair value due to their relatively short maturities. The Company’s financial instruments consist of Level I assets which consist primarily of highly liquid money market funds, some of which are included in restricted cash, and U.S. government bonds that are included in short-term investments.

13


 

 

The following tables set forth the fair value of the Company’s short-term investments subject to fair value measurements on a recurring basis and the level of inputs used in such measurements:

 

 

 

 

March 31, 2021

 

 

Valuation

Hierarchy

 

Amortized

Cost

 

 

Allowance

for Credit

Losses

 

 

Gross

Unrealized

Holding

Gains

 

 

Gross

Unrealized

Holding

Losses

 

 

Aggregate

Fair Value

 

 

 

 

(in thousands)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

Level I

 

$

281,201

 

 

$

 

 

$

 

 

$

 

 

$

281,201

 

Restricted cash (money market funds)

Level I

 

 

917

 

 

 

 

 

 

 

 

 

 

 

 

917

 

U.S. Government bonds

Level I

 

 

64,120

 

 

 

 

 

 

10

 

 

 

 

 

 

64,130

 

Total securities

 

 

$

346,238

 

 

$

 

 

$

10

 

 

$

 

 

$

346,248

 

 

 

 

 

December 31, 2020

 

 

Valuation

Hierarchy

 

Amortized

Cost

 

 

Allowance

for Credit

Losses

 

 

Gross

Unrealized

Holding

Gains

 

 

Gross

Unrealized

Holding

Losses

 

 

Aggregate

Fair Value

 

 

 

 

(in thousands)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

Level I

 

$

131,121

 

 

$

 

 

$

 

 

$